Canadian Mortgage Rates Were 20% Higher The Last Time Bond Yields Hit This Level

Canadian bond yields are rallying, and that’s bad news for people looking for cheap mortgage debt. The Government of Canada (GoC) 5-Year bond yield surged higher on Wednesday. The yield on this bond influences 5-year fixed mortgage rates, but have yet to be priced in. The last time yields were at this level, mortgage rates were over 20% higher. That means we should expect mortgage rates to climb over the next few weeks, if not days.

Canada’s 5-Year Government Bond Yields Made A Big Daily Jump

The GoC 5-year bond yield ripped higher as plans to ease monetary stimulus were released. The yield closed at 1.43% on Wednesday, an absolutely huge climb of 9 basis points (pts) in a single day. Yields are now 32.96 bps higher than a month ago, and 105.56 bps higher than last year. They haven’t been at this level since January 2020, before the pandemic.

Government of Canada 5-Year Bond Yield

The percent yield of the Government of Canada’s 5-year bond.

Source: Bank of Canada; Better Dwelling.

GoC 5-Year Bond Yields Have Been Climbing Fast This Past Month

That might have been too data-filled to give context to how fast these yields are rising. Over the past month, more than a quarter (27%) of the current yield is from yesterday’s increase. Over the past year, nearly a third (31%) of the rise in yield is from increases over the past 30 days. Growth is accelerating very fast.

Canadian Mortgage Rates Are Likely To Bond Yields Within Days

A lot of messages are being sent by bond yields, but the most broadly felt one will be rising mortgage rates. The 5-year bond yield is strongly linked to uninsured 5-year fixed mortgage rates.  As the 5-year bond yield climbs, so will mortgage rates. When it falls, so do mortgage rates. Super complicated, I know.

Mortgage rates have climbed, but they’re expected to go even higher over the next few weeks, if not days. A 5-year fixed mortgage rate is currently hovering around 2.00%, which is very cheap. The last time bond yields were at this level, mortgage rates were over 40 bps higher. The gap varies with the supply of credit, but it still would never be this big. Mortgages just haven’t had time to respond, since it’s been a quick climb.

Such a large mismatch of bond yields and mortgage rates means the latter will follow. The central bank is also ending quantitative easing, which had been suppressing rates. Further, they now expect to hike the overnight rates multiple times next year. All of these factors add up to tightening credit, and debt becoming more expensive. This may be a good thing, considering the high growth and real mortgage rates are negative.

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9 Comments

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  • GTA Landlord 1 year ago

    The whole economy makes zero sense at this point. Pretending to drive rates lower because we needed more home sales at record highs was a selfish move with no basis in reality. They abused the growth tool, and now there’s going to be a pullback.

    • D 1 year ago

      The sheep’s are getting sheered in 2022 for sure.

  • RW 1 year ago

    The debt is too damn cheap. There’s a reason institutions sitting on hundreds of empty properties are scooping up even more. They can manufacture the crisis, and these government subsidies in the form of low rates are the main driver.

  • Han 1 year ago

    Full rate hike priced in would mean a ~5% decline in prices, before adjusting income growth over the period. It will be very interesting to see what kind of drag on the economy this produces.

  • bringbackcommonsense 1 year ago

    These QE and rate setting tools are really destroying lots of peoples’ livelihoods. But people are just taking it without any noise. Not sure why?? These tools should be criminalized and Govt should let true “Capitalism” take hold. Or stop calling us that. “Feudalism”, “Oligarchy” may be?

  • Arjay 1 year ago

    RBC Mortgage rates for 5 year fixed –
    Oct 1st – 1.99%, Oct 7th – 2.24%, Oct 27th – 2.69%. This is just in October !!!

  • Flipg 1 year ago

    The Government has been driving the economy to extinction for one purpose: to buy votes. The Middle Class is convinced a family’s wealth is it’s castle. Why work for a living when you can stay home and collect UBI.

  • Ashley 1 year ago

    Now how the brilliant plan of getting everyone to buy 4 houses will work? People will have to live in misery because they can’t buy a house close to office so they’ll have to stress for commute, they won’t be able to buy a weekend getaway house and how can one even think about not having a cottage. Just one primary residence,! We need a new housing and immigration minister along with a new PM and BoC governor. They don’t seem to understand the pain middle class will have by only having one house.

  • Pat 1 year ago

    The average cost to build a new house in 2021 is $248000, or between $100 to $155 per square foot. The lot price would be according to services, availability and density, You can buy land in Canada for $1000 per acre or >$1000 per sq ft. I suggest people need to spread out more.

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